Foreign Investment in India

‘Foreign Investment’ means any investment made bya person resident outside India on a repatriable basisin capital instruments of an Indian company or to thecapital of an LLP;

If a declaration is made by persons as per theprovisions of the Companies Act, 2013 about abeneficial interest being held by a person residentoutside India, then even though the investmentmay be made by a resident Indian citizen, the sameshall be counted as foreign investment.

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Why Foreign Investments?

For governments:

Changing role of governments

Boost to economic activity

Access to latest technology

Bridging the current account deficit (for developing countries)

Supplement to domestic savings for large infrastructure investments

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Why Foreign Investments?

For companies:

Overcoming the tariff barriers

Increasing global competition

Acceleration on development of technology

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Foreign Investments

Foreign Direct Investment

Portfolio Investment

Notification No. FEMA 20(R)/ 2017-RB

November 07, 2017

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations,

2017

Foreign Investments in India – Schematic

Representation

Foreign Investments in India

VCFS, IVCUsApprova

l Route

Foreign Direct Investments

Foreign Portfolio

Investments

Foreign Venture capital

Investments

Other Investments (G-Secs, NCDs etc.)

Investments on non-repatriation

basis

Automatic Route

Persons resident

outside India

SEBI registered

FVCIs FIIsNRIs, PIOs

NRIs, PIOs

Permissible Investors

Investmenttypes

FIIS, NRIs, PIOs, QFIs

FEM (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000: ‘FEMA 20’

Sch. 1- Foreign Direct Investment (‘FDI’) Scheme

Sch. 2 & 2A-Purchase/Sale of shares or convertible debentures or warrants of an IndianCompany by Registered Foreign Portfolio Investor (RFPI) under Foreign PortfolioInvestment (FPIs) Scheme (Registered FIIs under Sch. 2 subsumed with Sch. 2A)

Sch. 3 - Purchase/Sale of Shares and/or Convertible Debentures by an NRI on a stockexchange in India on repatriation and/or non-repatriation basis under Portfolio InvestmentScheme

Sch. 4 - Purchase and Sale of Shares or Convertible Debentures or Warrants] by NRI, on Non-repatriation basis

Sch. 5 - Purchase and Sale of Securities other than Shares or Convertible Debentures of anIndian company by a person resident outside India

Sch. 6 - Investment in an Indian venture capital undertaking by a registered Foreign VentureCapital Investor

Sch. 7 - Indian depository receipts by eligible companies resident outside India

Sch. 8 -Scheme for investment by Qualified Foreign Investors in equity shares (Subsumedunder Sch. 2A)

Sch.9 -Scheme for Acquisition/Transfer by a person resident outside India of capitalcontribution or profit share of (LLPs)

Sch. 10 -Depository Receipts Scheme, 2014 (DRs)

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FDI AND FPI

A person resident outside India may hold foreign investment either asForeign Direct Investment or as Foreign Portfolio Investment inany particular Indian company.

IMF’s Balance of Payments Manual 5, FDI is that category of international investment that reflects

the objective of obtaining a lasting interest by aresident entity in one economy in an enterprise resident inanother economy.

The lasting interest implies the existence of a long-termrelationship between the direct investor and theenterprise and a significant degree of influence by the investorin the management of the enterprise.

According to EU law, foreign investment is labeled directinvestment when the investor buys more than 10 per cent ofthe investment target, and portfolio investment when theacquired stake is less than 10 per cent.

FIIs are not interested in management control in general

Any flow of lending to, or purchases of ownership in, a foreign enterprisethat is largely owned by residents of the investing country.

Securities (stocks and bonds)

Loans

Bank deposits

Technical Collaboration

FDI is the purchase of assets to establish financial control of a foreign entity. Generally ownership of 10% or more of a company’s outstanding stock is considered FDI.

Portfolio investment involves little management control or interest, and is solely for financial gain.

Contd.

Foreign Direct Investment & Foreign Portfolio Investment(Notification No. FEMA 20(R)/ 2017-RB November 07, 2017

Foreign Direct Investment

Investment in capital instrument of an unlistedcompany or Investment in the capitalinstruments of 10% or more of the capital of alisted company

If investment in a listed company falls below10%, it will continue to be FDI

Foreign Portfolio Investment

Investment in the capital instruments of 10% orless of the capital of a listed company

Automatic Route and Approval Route10

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Activities in which Foreign Investment is prohibited Foreign investment in any form is prohibited in a company

or a partnership firm or a proprietary concern or any entity, whether incorporated or not (such as, Trusts) which is engaged or proposes to engage in the following activities:

(a) Business of chit fund, or

(b) Nidhi company, or

(c) Agricultural or plantation activities, or

(d) Real estate business, or construction of farm houses, or

(e) Trading in Transferable Development Rights (TDRs).

Only NRIs are eligible to subscribe to the chit funds on non- repatriation basis subject to conditions:

Foreign Investments FDI is not allowed both under Govt Route and Automatic route in

(a) Lottery Business including Government/ private lottery, online lotteries, etc.

(b) Gambling and Betting including casinos etc.

(c) Chit funds

(d) Nidhi company

(e) Trading in Transferable Development Rights (TDRs)

(f) Real Estate Business or Construction of Farm Houses

(g) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

(h) Activities / sectors not open to private sector investment e.g. (I) Atomic energy and (II) Railway operations

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FDI compliant instruments Equity shares issued in accordance with the provisions of the

Companies Act, 2013;

Fully and mandatorily convertible preference shares, and fully andmandatorily convertible debentures. The price/ conversion formula ofconvertible instruments should be determined upfront at the time ofissue of the instruments and should not in any case be lower than thefair value worked out, at the time of issuance of such instruments, inaccordance with FEMA 20 Partly paid equity shares (25% - 12 m) andwarrants (25%-18 m) issued by an Indian company in accordance withthe provision of the Companies Act, 2013 and the SEBI guidelines, asapplicable, The pricing and receipt of balance consideration shall be asstipulated in terms of A.P.(DIR Series) Circular No.3 dated July 14, 2014as modified from time to time (pricing/receipt ofbalance/reporting/compliance).

Non-convertible/ optionally convertible/ partially convertible preference shares (issued after April 30, 2007) and optionallyconvertible/ partially convertible debentures (issued after June 7, 2007) shall be treated as debt and shall require conforming toExternal Commercial Borrowings guidelines

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Other mode

FDI compliant instruments, as applicable can be issued by Indian

companies as follows:

ESOP

Sweat Equity

Bonus

Rights

Swap of Shares

On merger/ de-merger/ amalgamation etc of Indian companies

Against any other funds payable to a person resident outside India, the

remittance of which does not require the prior approval of the Reserve

Bank or the Government of India.

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Modes of payment allowed forreceiving FDI in an Indian company

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a.inward remittance through normal banking channels;

b.debit to NRE/ FCNR (B) account of a person concerned maintained with an AD

Category I bank;

c.debit to non-interest bearing Escrow account in Indian Rupees in India which is

opened with the approval from AD Category – I bank and is maintained with the AD

Category I bank on behalf of residents and non-residents towards payment of share

purchase consideration;

d.conversion of royalty/ lump sum/ technical know-how fee due for payment or

conversion of ECB;

e.conversion of pre-incorporation/ pre-operative expenses incurred by the a non-

resident entity up to a limit of five percent of its capital or USD 500,000 whichever is

less;

f.conversion of import payables/ pre incorporation expenses/ can be treated as

consideration for issue of shares with the approval of FIPB;

g.against any other funds payable to a person resident outside India, the remittance of

which does not require the prior approval of the Reserve Bank or the Government of

India: and

h.Swap of capital instruments, provided where the Indian investee company is engaged

in a Government route sector, prior Government approval shall be required

FDI &FPI in INDIA (USD Mio)

INVESTMENT TYPE

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

FDI 22061 19819 21564 31251 36021 35612

FPI 17170 26891 4822 42205 -4130 7612

TOTAL 39231 46711 26386 73456 31891 43224

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FDI in India-Sector wise (2016-17)

The sector wise foreign direct investment inflows to India during 2016-17(Provisional) are given below.

Manufacturing I USD 11972(mio)

Communication Services II USD 5876(mio)

Financial Services III USD 3732(mio)

Retail & Wholesale Trade IV USD 2771(mio)

Business Services V USD 2684(mio)

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Foreign Direct Investment Flows (2016-17)

Country Rank

Mauritius I

Singapore II

Japan III

Netherlands IV

USA V

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Top Ten Country-wise FDI Equity Inflows toIndia from April, 2000 to March2017

SL No COUNTRY FDI in rupees

FDI inUSD(Bn)

% of Total FDI

1 Mauritius 585950.38 111.63 33.63

2 Singapore 315042.49 54.59 16.44

3 Japan 142259.65 25.67 7.73

4 UK 125544.59 24.59 7.41

5 Netherlands 117166.54 20.68 6.23

6 U.S.A 110531.54 20.32 6.12

7 Germany 52044.62 9.69 2.92

8 Cyprus 46730.58 9.15 2.76

9 France 30637.22 5.72 1.72

10 UAE 26186.87 4.7 1.42

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Sector-wise FDI Equity Inflow from April2000 to March 2017

SL No

Sector FDI in rupees

FDI inUSD(Bn)

% of Total FDI

1 Service Sector 316567.77 59.47 17.92

2 Computer Software &

Hardware

136789.08 24.66 7.43

3 Construction &

Development

114638.90 24.29 7.32

4 Telecommunications 130163.87 23.94 7.21

5 Automobile Industry 92218.42 16.67 5.02

6 Drugs &

Pharmaceuticals

75820.05 14.70 4.43

7 Trading 84557.43 14.21 4.28

8 Chemicals 68951.96 13.29 4.00

9 Power 60086.74 11.58 3.49

10 Metallurgical Industries 53074.07 10.33 3.1120

FDI Equity Flows-Top Ten States (2000-

2017)

S.

No.

State-wise Inflows of FDI Cumulative

FDI ( USD Bn)

%age

to total

Inflows

1 MAHARASHTRA, DADRA & NAGAR HAVELI,

DAMAN & DIU

102.28 31

2 DELHI, PART OF UP AND HARYANA 68.03 20

3 TAMIL NADU, PONDICHERRY 23.76 7

4 KARNATAKA 22.37 7

5 GUJARAT 16.65 5

6 ANDHRA PRADESH 13.76 4

7 WEST BENGAL, SIKKIM, ANDAMAN & NICOBAR

ISLANDS

3.98 1

8 KERALA,LAKSHADWEEP 1.75 1

9 RAJASTHAN 1.48 0.4

10. MADHYA PRADESH, CHATTISGARH 1.37 0.4

FII Investment in India 2007-2017 (Rs in Crores)Year Equity Debt Total

2007-08 53404 12775 66179

2008-09 -47706 1895 -45811

2009-10 110221 32438 142658

2010-11 110121 36317 146438

2011-12 43738 49988 93726

2012-13 140033 28334 168367

2013-14 79709 -28060 51649

2014-15 111333 166127 277461

2015-16 -14172 -4004 -18176

2016-17 55703 -7292 48411

DI and IFI

Down stream Investment (DI)

Investment made by an Indian company/LLP into another Indian

company/LLP

Indirect Foreign Investment (IFI)

Investment received by an Indian company/LLP from

Another Indian company not owned and not controlled by resident

Indian citizens or owned or controlled by persons resident outside India

Ownership–more than 50% share

Control–ability to appoint majority of the directors/partners or to control the management/policy decisions

Total Foreign Investment–Direct Investment received from persons resident outside India + IFI

DI can be made by LLP in sectors under 100% auto route & no FDI linked conditionalities are there

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Foreign Investment Foreign investment into an Indian company, engaged

only in the activity of investing in the capital of other Indian company/ies, will require prior approval of the Government.

An Indian company may issue capital instruments to a person resident outside India against swap of capital instruments if the Indian investee company is engaged in an automatic route sector.

An Indian company may issue equity shares against any funds payable by it to a person resident outside India, the remittance of which is permitted.

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Capital instruments with GOI Approval An Indian company may issue capital instruments to a

person resident outside India with prior Governmentapproval against:

(a) Swap of capital instruments if the Indian investeecompany is engaged in a sector under Governmentroute;

(b) Import of capital goods/ machinery/ equipment(excluding second-hand machinery) subject to theconditions specified by RBI and GOI

(c) Pre-operative/ pre-incorporation expenses(including payments of rent etc.), subject tocompliance with the conditions specified by RBI andGOI 25

Mode of Payment &Repatriation

As inward remittance from abroad through banking channels or out offunds held in NRE/ FCNR(B)/ Escrow account

The amount of consideration shall include:

(i) Issue of equity shares by an Indian company against any fundspayable by it to the investor

(ii) Swap of capital instruments.

(2) Capital instruments shall be issued to the person resident outsideIndia making such investment within 60 ( prior to Nov 17, 2017 – 180)days from the date of receipt of the consideration.

In case of partly paid equity shares, the period of 60 days shall bereckoned from the date of receipt of each call payment

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Mode of Payment &Repatriation

Where the capital instruments are not issued within 60 days from thedate of receipt of the consideration the same shall be refunded to theperson concerned by outward remittance through banking channels orby credit to his NRE/ FCNR(B) accounts, within 15 days from the dateof completion of sixty days.

Prior approval of the RBI shall be required for payment of interest, ifany, as laid down in the Companies Act, 2013, for delay in refund of theamount so received.

An Indian company issuing capital instruments under this Schedulemay open a foreign currency account with an Authorised Dealer

Remittance of sale proceeds

The sale proceeds (net of taxes) of the capital instruments may beremitted outside India or may be credited to the NRE/ FCNR(B) of theperson concerned.

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Entry Routes and Eligibility Freely permitted in almost all sectors

Two entry routes –

Automatic Route – No approval required

Approval Route – Government (MoF, FIPB,(SIA)DIPP) prior approval required

Eligibility – A person resident outside India or anentity incorporated outside India. Residents of andentities incorporated in Bangladesh and Pakistanrequire FIPB approval.

Onus for complying with FDI on the Indiancompany

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FI- Sectoral Investment Caps-(November 2017)

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Defence 49%

Print Media 26%

Insurance 49%

Pvt security Agencies 49%

Multibrand retail trading 51%

Satellites - Establishment and operation 74%

Banking-private sector 74%

Banking-public sector 20%

Commodity Exchange 49%

Credit Information Companies 74%

Power Exchanges 49%

Pension Sector 49%

Automatic Route- Reporting-using eBiz portal

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An Indian company issuing shares or convertible debentures to persons residentoutside India , should submit to RBI the details of advance remittance, not laterthan 30 days from the date of receipt of the amount of consideration, in form -Advance Remittance Form (ARF)

The equity instruments should be issued within 60 days of the receipt of theinward remittance.

After issue of shares the Indian company has to file a report in Form FC-GPR(Foreign Currency Gross Provisional Return) not later than 30 days from thedate of issue of shares with the Regional Office of RBI under whose jurisdictionthe registered office of the company is situated.

Physical filing of the three FDI returns ARF,FC-GPR and FC-TRS(Foreign CurrencyTransfer of Shares) replaced with the online filing on Government’s e-Biz portal(hosted on the National Informatics Centre (NIC) servers).

Simplification of FDI Policy (October 20,2016)

In all sectors where there is a limit/cap on foreign investment, such limit/cap

shall be reckoned in a composite manner.

"sectoral cap", i.e., the maximum amount which can be invested by foreign

investors in an entity will include all types of foreign investments, direct and

indirect.

FCCBs and DRs having underlying of instruments being in the nature of

debt, shall not be treated as foreign investment under such composite

limit/cap.

Any equity holding by a person resident outside India resulting from

conversion of any debt instrument under any arrangement shall be

reckoned as foreign investment under the composite limit/cap.

“Total foreign investment" in an Indian company will be the sum total of

direct and indirect foreign investments.

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Simplification of FDI Policy (October 20,2016)

Portfolio investment up to aggregate foreign investment level of 49% or

sectoral/statutory cap, whichever is lower, will not be subject to either

Government approval or compliance with the sectoral conditions, provided

such investment does not result in change in ownership leading to control of

Indian entities by non-resident entities.

Other foreign investments will be subject to conditions of Government

approval and compliance of sectoral conditions .

The onus of compliance with the sectoral/statutory caps on foreign

investment and attendant conditions, shall be on the company receiving

foreign investment.

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Simplification of FDI Policy (October 20,2016)

A company shall be considered as owned by resident Indian citizens if more

than 50% of the capital in it is beneficially owned by resident Indian

citizens and/or Indian companies, which are ultimately owned and

controlled by resident Indian citizens.

‘Control’ shall include the right to appoint a majority of the directors or to

control the management or policy decisions including by virtue of their

shareholding or management rights or shareholders agreement or voting

agreement.

Foreign investment in LLP is permitted under the automatic route if the LLP is

engaged in sector where 100% FDI is allowed.

Foreign investment by way of swap of shares is permitted provided the

resident company in which the investment is made is engaged in an

automatic route and irrespective of the amount, valuation of the shares

involved in the swap arrangement is made by a MB registered with SEBI or

an Investment Banker outside India.

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Simplification of FDI Policy (October 20,2016)

A Non-resident Indian (NRI) has been permitted to purchase or sell shares,

convertible preference shares, convertible debentures and warrants of an

Indian company or units of an investment vehicle, on both repatriation basis

non-repatriation basis .

Investment by an NRI, including a company, a trust and a partnership firm

incorporated outside India and owned and controlled by NRI, on non-

repatriation basis will be deemed to be domestic investment at par with

the investment made by residents.

Foreign investment up to 100 percent under the automatic route has been

permitted in the plantation sector which includes tea plantations, coffee

plantations, rubber plantations, cardamom plantations, palm oil tree

plantations and olive oil tree plantations

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Simplification of FDI Policy (October 20,2016)

"Real estate business" shall mean dealing in land and immovable property

with a view to earning profit therefrom and does not include development

of townships, construction of residential / commercial premises, roads or

bridges, educational institutions, recreational facilities, city and regional

level infrastructure, townships.

Earning of rent income on lease of the property, not amounting to transfer,

will not amount to “real estate business”.

Manufacturing has been given a precise definition and foreign investment

up to 100% under the automatic route is permitted in manufacturing .

A manufacturer is permitted to sell its products manufactured in India

through wholesale and/or retail, including through e-commerce without

Government approval.

An entity engaged in single brand retail trading operating through brick

and mortar stores, is permitted to undertake retail trading through e-

commerce.

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Foreign investment in Other Financial Services (October 20,2016)

Foreign investment up to 100% is allowed under the automatic route in ‘Other

Financial Services’.

Other Financial Services will include activities which are regulated by any financial

sector regulator viz. RBI, SEBI, IRDA, PFRDA(Pension Fund Regulatory and

Development Authority),NHB or any other financial sector regulator.

Such foreign investment shall be subject to conditionalities, including minimum

capitalisation norms, as specified by the concerned Regulator/ Government Agency.

In financial services activities which are not regulated or partly regulated by any

financial sector regulator or where there is lack of clarity regarding regulatory

oversight, foreign investment will be allowed up to 100% under the Government

approval route.

Foreign investment in an activity which is specifically regulated by an Act, will be

restricted to foreign investment levels/limits, if any, specified in that Act.

Downstream investment by any entity engaged in ‘Other Financial Services” will be

subject to extant sectoral regulations and provisions of Principal Regulations.

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Shares against pre-incorporation/ pre-operative expenses (October 24,2016)

A WOS set up in India by a non-resident entity, operating in a sector where

100 % foreign investment is allowed in the automatic route may issue

equity shares or preference shares or convertible debentures or warrants to

the said non-resident entity against pre-incorporation/ pre-operative

expenses incurred by the said non-resident entity up to a limit of five

percent of its capital or USD 500,000 whichever is less, subject to

conditions.

Within 30 days from the date of issue, but not later than one year from the

date of incorporation or such time as RBI or GOI permits, the Indian

company shall report the transaction in the Form FC-GPR to RBI.

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Foreign investment in the Pension Funds November 04, 2016

Foreign investment in the Pension Funds is allowed as per the

Pension Fund Regulatory and Development Authority (PFRDA)

Act, 2013.

Entities bringing in foreign investments as equity shares or

preference shares or convertible debentures or warrants shall

obtain necessary registration from the PFRDA.

An Indian pension fund shall ensure that its ownership and

control remains at all times in the hands of resident Indian

entities as determined by the Government of India / PFRDA as

per the rules/regulation issued by them.

.

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Deposits

Keeping of deposits with an Indiancompany by persons resident outsideIndia under Section 160 of theCompanies Act 2013 was clarified to bea current account transaction whichwould not require any approval fromRBI (April 13,2016)

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Units issued by Trusts

A person resident outside Indiaincluding Registered Foreign Portfolioinvestors and NRIs to be allowed toinvest in the units issued by Real EstateInvestment Trusts, InfrastructureInvestment Trusts and AlternateInvestment Funds on repatriation basis

(April 21,2016)

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41

NRI investment on Non Repatriation basis

Investment on non-repatriation basis by NRI without limit except investment in

Nidhi company

Agricultural or plantation business

Real estate business or construction of farm houses

Payment by

Inward remittance

Debit to FCNR/NRE/NRO a/c

Sale proceeds not repatriable

42

NRI Investment in NPS

The National Pension System(NPS) was enabledas an investment option for the NRIs underFEMA, provided such subscriptions werethrough normal banking channels and theperson was eligible to invest under PFRDA Act(October 29,2015)

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Disinvestment

FDI not subject to any lock-in period

ADs allowed to remit sale proceeds outof India subject to: The security was held on repatriable basis

The security has been sold on the floor ofa stock exchange at market determinedprices/RBI approval has been obtained

No-objection/tax clearance certificate fromthe Income Tax authorities

44

FIIs An institution established/ incorporated outside

India which proposes to make investments in Indiain securities

Allowed to operate in India from September 1992 –original guidelines given by government of India

SEBI guidelines issued in November 1995

Pension funds ,Mutual funds, Investment trusts,Asset management companies, Institutionalportfolio managers, University funds, Endowments,Foundations etc

45

FPI

‘Foreign Portfolio Investor (FPI)’ means a person registered inaccordance with the provisions of Securities Exchange Boardof India (Foreign Portfolio Investors) Regulations, 2014.

Any Foreign Institutional Investor (FII) or a sub accountregistered under the Securities Exchange Board of India(Foreign Institutional Investors) Regulations, 1995 andholding a valid certificate of registration from Securities andExchange Board of India shall be deemed to be a FPI till theexpiry of the block of three years from the enactment of theSecurities Exchange Board of India (FPI) Regulations, 2014.

FIIs, Sub-Accounts and Qualified Foreign Investors (QFIs)are merged into a single and new investor class called“Foreign Portfolio Investors” (FPIs). {K.M. Chandrasekharcommittee recommendations on rationalising investmentroutes and monitoring foreign portfolio investments}

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Reserve Bank Approval Would Enable FIIs To

Open foreign currency account - different accounts fordifferent currencies allowed

Special non-resident rupee account (SNRR)for creditingsale proceeds, income from dividends & interest

Transfer funds from foreign currency account to specialrupee account & vice-versa

Make investments out of balance in rupee account

Repatriate capital gains & income subject to deductionof tax

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FPI investment on repatriation basis

(a) dated Government securities/ treasury bills;

(b) non-convertible debentures/ bonds issued by an Indian company;

(c) commercial papers issued by an Indian company;

(d) units of domestic mutual funds;

(e) Security Receipts (SRs) issued by Asset Reconstruction Companies up to 100percent of each tranche, subject to directions/ guidelines of the Reserve Bank;

(f) Perpetual Debt instruments eligible for inclusion as Tier I capital and Debtcapital instruments as upper Tier II capital

(g) non-convertible debentures/ bonds issued by Non-Banking FinancialCompanies categorized as ‘Infrastructure Finance Companies’(IFCs) by theReserve Bank;

(h) Rupee denominated bonds/ units issued by Infrastructure Debt Funds;

(i) Credit enhanced bonds;

(j) Listed non-convertible/ redeemable preference shares or debentures

(k) Security receipts issued by securitization companies

(l) Securitised debt instruments

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Limits on Investments

No minimum/maximum limit on volume of investment

No lock in period

Does not include foreign investment under the foreign directinvestment under automatic approval route, GDRs etc

Individual FII limit - 10% of the paid up capital of a company

Portfolio investment for all FIIs subject to a ceiling of 24% of theissued share capital of a company – raised to the sectoral capfor the industry if special a resolution is passed by company

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Mode of payment and Repatriation

By inward remittance from abroad through bankingchannels or out of funds held in a foreign currencyaccount and/ or a Special Non-Resident Rupee (SNRR)account

The foreign currency account and SNRR account shallbe used only and exclusively for transactions under thisSchedule

Remittance of sale proceeds

The sale proceeds (net of taxes) of the investmentsmay be remitted outside India or may be credited to theforeign currency account or a SNRR account of the FPI.

FPI-Investment Limits revised-(October

6,2015)

The limits for FPI investment in debt securities to be announced/ fixed in Rupee terms.

The limits for FPI investment in the Central Governmentsecurities will be increased in phases to reach 5 per cent of theoutstanding stock by March 2018.

A separate limit for investment by all FPIs in the StateDevelopment Loans (SDLs), to be increased in phases to reach2 per cent of the outstanding stock by March 2018.

The existing requirement of investments being made in G-sec(including SDLs) with a minimum residual maturity of threeyears will continue to apply to all categories of FPIs.

Aggregate FPI investments in any Central Government securitywould be capped at 20% of the outstanding stock of thesecurity.

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Foreign investment limits in corporate debt-April 13,2016

FPI Limit in corporate debt to be fixed in rupees

The issuance of Rupee denominated bondsoverseas to be within the aggregate limit offoreign investment permitted in corporate debt.

The current limit of USD 51 billion for foreigninvestment in corporate debt, has been fixed inRupee terms at Rs. 2443.23 billion.

Issuance of Rupee denominated bonds overseaswill be within this aggregate limit of foreigninvestment in corporate debt.

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Participation of FPIs in Government securities on NDS-OM platform (October 20,2016)

FPIs are currently permitted to transact in the Over-The-Counter (OTC) market for Government securities with T+2settlement.

With effect from December 1, 2016, FPIs are allowed to tradeGovernment securities in the secondary market through theprimary members of NDS-OM including the Web-module.

The primary members of NDS-OM shall be responsible forsettlement of the trades, which will be on T+1 basis.

52

53

NRI-PIS-Repatriation basis

NRIs can purchase/sell shares on a recognisedstock exchange through a registered broker/AD

Scheme under both options of repatriation and non-repatriation

NRI has to designate one branch of the AD forrouting all transactions for sale/purchase

Limit for individual NRI 5% of the paid up capitalof a company for both repatriation & non-repatriation basis

Total NRI ceiling of 10% Condition applicable to convertible debentures also Ceiling for NRI investment can be raised to 24% by

the company by passing special resolution

NRI-PIS-Repatriation basisMode of payment & Repatriation by NRIs

As inward remittance from abroad through banking channels orout of funds held in a Non-Resident External (NRE) account

The NRE account will be designated as an NRE (PIS) Accountand the designated account shall be used exclusively for puttingthrough transactions permitted under this Schedule.

Remittance of sale proceeds

The sale proceeds (net of taxes) of the capital instruments maybe remitted outside India or may be credited to NRE (PIS)account of the person concerned.

Any account designated as NRO (PIS) shall be re-designated asNRO account.

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55

NRE (PIS) Account

An NRI may open a designated NRE account called an NRE(PIS) Account with a designated branch of an AD for routingthe receipt and payment for transactions relating to sale andpurchase of shares /convertible preference shares/ convertibledebentures/ warrants/ units.

AD shall ensure that sale proceeds of securities or units whichhave been acquired by modes other than PIS such as underlyingshares acquired on conversion of ADRs / GDRs, shares /convertible preference shares / convertible debentures/warrants acquired under FDI Scheme or purchased outsideIndia from other NRIs or acquired under private arrangementfrom residents/non-residents or purchased while resident inIndia, do not get credited in the NRE (PIS) Account and vice-versa.

56

NRI Investment-Repatriation Basis

(a) Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds;

(b) Bonds issued by a Public Sector Undertaking (PSU) in India;

(c) Shares in Public Sector Enterprises being disinvested by the Central Government

(d) Bonds/ units issued by Infrastructure Debt Funds;

(e) Listed non-convertible/ redeemable preference shares or debentures

(2) perpetual debt instruments eligible for inclusion as Tier I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital

(3) An NRI may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such person is eligible to invest as per the provisions of the PFRDA Act. The annuity/ accumulated saving will be repatriable.

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NRI InvestmentNon Repatriation Basis

Dated Government securities (other than bearersecurities), treasury bills, units of domestic mutualfunds, units of money Market Mutual Funds, orNational Plan/ Savings Certificates.

Listed non-convertible/ redeemable preference sharesor debentures

Subscribe to the chit funds authorised by theRegistrar of Chits or an officer authorised by the StateGovernment in this behalf.

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Investment by Foreign Central Banks, Multilateral Development Bank and long term investors

A Foreign Central Bank may purchase and sell dated Government securities/ treasury bills in the secondary market subject to the conditions as may be stipulated by the Reserve Bank.

A Multilateral Development Bank which is specifically permitted by Government of India to float rupee bonds in India may purchase Government dated securities.

Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds which are registered with Securities and Exchange Board of India as eligible investors in Infrastructure Debt Funds may purchase on repatriation basis

Rupee Denominated bonds/ units issued by Infrastructure Debt Funds.

Investment by Long Term Investors Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies,

Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banksregistered with Securities and Exchange Board of India may purchase, onrepatriation basis the following instruments and subject to such terms andconditions as may be specified by the Reserve Bank and the Securities andExchange Board of India:

(a) dated Government securities/ treasury bills;

(b) commercial papers issued by an Indian company;

(c) units of domestic mutual funds;

(d) listed non-convertible debentures/ bonds issued by an Indian company;

(e) listed and unlisted non-convertible debentures/ bonds issued by an Indiancompany in the infrastructure sector.

(f) non-convertible debentures/bonds issued by Non-Banking FinanceCompanies categorized as ‘Infrastructure Finance Companies (IFCs)’ by theReserve Bank;

(g) security Receipts (SRs) issued by Asset Reconstruction Companies up to 100percent of each tranche, subject to directions/ guidelines of the Reserve Bank;

(h) perpetual Debt instruments eligible for inclusion as Tier I capital and Debtcapital instruments as upper Tier II capital issued by banks in India to augmenttheir capital (Tier I capital and Tier II capital

(i) primary issues of non-convertible debentures/ bonds

(j) credit enhanced bonds;

(k) listed non-convertible/ redeemable preference shares or debentures

(l) security receipts (SRs) issued by securitization companies59

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Investment in Limited LiabilityPartnership (LLP)

A person resident outside India (other than a citizen of Pakistan orBangladesh) or an entity incorporated outside India (other than an

entity incorporated in Pakistan or Bangladesh), not being aForeign Portfolio Investor (FPI) or a ForeignVenture Capital Investor (FVCI), may contribute to the

capital of an LLP operating in sectors/ activities where foreigninvestment up to 100 percent is permitted under automatic route andthere are no FDI linked performance conditions.

Payment by an investor towards capital contribution of an LLP shall be made by way of an inward remittance through banking channels or out of funds held in NRE or FCNR(B) account

Remittance of disinvestment proceeds

The disinvestment proceeds may be remitted outside India or may be credited to NRE or FCNR(B) account of the person concerned.

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Investment in Partnership Firm / Proprietary Concern

A NRI or PIO resident outside India may invest by way ofcontribution to the capital of a firm or a proprietaryconcern in India on non-repatriation basis provided

a) Amount is invested by inward remittance or out of NRE/ FCNR / NRO account maintained with AD.

b) The firm or proprietary concern is not engaged in anyagricultural/plantation or real estate business (i.e. dealingin land and immovable property with a view to earningprofit or earning income there from) or print media sector.

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Investment in Partnership Firm / Proprietary Concern

Investment in sole proprietorship concern /partnership firm with repatriation benefits

NRIs / PIO may seek prior permission of ReserveBank for investment in sole proprietorshipconcerns/ partnership firms with repatriationbenefits.

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Depository Receipts

A person will be eligible to issue or transfer eligible securities to a foreign depository,for the purpose of converting the securities so purchased into depository receipts interms of Depository Receipts Scheme, 2014.

A company can issue DRs, if it is eligible to issue eligible instruments to personresident outside India

The aggregate of eligible securities which may be issued or transferred to foreigndepositories, along with eligible securities already held by persons resident outsideIndia, shall not exceed the limit on foreign holding of such eligible securities.

The eligible securities shall not be issued or transferred to a foreign depository for thepurpose of issuing depository receipts at a price less than the price applicable to acorresponding mode of issue or transfer of such securities to domestic investors.

A domestic custodian may purchase eligible instruments on behalf of a person residentoutside India, for the purpose of converting the instruments so purchased intodepository receipts in terms of DR Scheme 2014.

The domestic custodian shall report the issue of depository receipts as per DRScheme 2014 to the Reserve Bank as per the reporting guidelines for DR Scheme2014.

Indian Depository Receipts (IDRs)

Companies incorporated outside India may issue IDRs through a DomesticDepository, to persons resident in India and outside India, subject to thefollowing conditions

(1) the issue of IDRs is in compliance with the Companies (Registration ofForeign Companies) Rules, 2014 and the Securities and Exchange Board of India(Issue of Capital and Disclosure Requirements) Regulations, 2009;

(2) any issue of IDRs by financial/ banking companies having presence in India,either through a branch or subsidiary, shall require prior approval of the sectoralregulator(s);

(3) IDRs shall be denominated in Indian Rupees only;

(4) the proceeds of the issue of IDRs shall be immediately repatriated outsideIndia by the companies issuing such IDRs.

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Indian Depository Receipts (IDRs)

An FPI or an NRI or an OCI may purchase, hold or sell IDRs,subject to the following terms and conditions:

(1) NRIs or OCIs may invest in the IDRs out of funds held intheir NRE/ FCNR(B) account

(2) Limited two way fungibility of IDRs shall be permissible

(3) IDR shall not be redeemable into underlying equity sharesbefore the expiry of one year from the date of issue;

Redemption/ conversion of IDRs into underlying equity sharesof the issuing company shall be a compliance the ForeignExchange Management (Transfer or Issue of any ForeignSecurity) Regulations, 2004.

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Transfer of shares

General permission for NR/NRIs for transfer of shares and CDsto any person resident outside India

NRIs can transfer by way of sale or gift the shares or CDs toanother NRI

Person resident outside India may transfer any security to aperson resident India by way of gift and also can sell them on arecognised stock exchange in India through a registered stockbroker.

Pricing not applicable for transfers between two Non-Residents

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Transfer of sharesForm FC-TRS

Reporting of transfer of shares between residents and non-residents and vice- versa isto be made in Form FC-TRS.

The Form FC-TRS to be submitted to the AD Category – I bank, within 60 days fromthe date of receipt of the amount of consideration.

The onus of submission of the Form FC-TRS within the given timeframe would be onthe transferor / transferee, resident in India.

The onus of complying with the sectoral cap/limits prescribed under FDI policy as wellas other guidelines/regulations would rest with the buyer and seller/issuer.

Transfer of shares from Resident to Non-Resident

Price of shares shall not be less than the fair value worked out as

per any internationally accepted pricing methodology for valuation of

shares on arm’s length basis

Transfer of shares from Non-Resident to Resident

Price of shares shall not be more than the fair value worked out as per any

internationally accepted pricing methodology for valuation of shareson arm’s

length basis

Transfer of shares

In case of transfer of shares between a resident buyer and a non-resident seller or vice-versa, not more than twenty five per cent ofthe total consideration can be paid by the buyer on a deferred basiswithin a period not exceeding eighteen months from the date ofthe transfer agreement.

For this purpose, an escrow arrangement may be made between thebuyer and the seller for an amount not >25% of the total considerationfor a period not exceeding 18 months from the date of the transferagreement.

The total consideration finally paid for the shares must be compliantwith the applicable pricing guidelines.

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Foreign Venture Capital Investor (FVCI) -Investments

FVCI may invest in the sectors

(1) Biotechnology

(2) IT related to hardware and software development

(3) Nanotechnology

(4) Seed research and development

(5) Research and development of new chemical entities in pharmaceutical sector

(6) Dairy industry

(7) Poultry industry

(8) Production of bio-fuels

(9) Hotel-cum-convention centres with seating capacity of more than three thousand.

(10) Infrastructure sector. 69

FVCI-Investments

IVCU-- a company incorporated in India whose shares are notlisted on a recognized stock exchange in India and which is notengaged in an activity under the negative list specified by SEBI.

VCF is defined as a fund established in the form of a trust, acompany including a body corporate and registered under theSEBI (Venture Capital Fund) Regulations, 1996 which has adedicated pool of capital raised in a manner specified under thesaid Regulations and which invests in Venture CapitalUndertakings in accordance with the said Regulations.

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Conversion of ECB etc. to Equity

General permission for Issue of equity against Conversion of ECB (subject to sectoral cap, pricing

guidelines and Govt. approval if falling underapproval route)

Lump-sum technical know-how fee, royalty, underautomatic route or approval route, subject tocompliance with pricing guidelines and applicabletax laws

import of capital goods by SEZ units subject tovaluation by Development Commissioner andCustoms

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Reporting Issue of shares

ARF–within 30 days from the date of receipt of remittance along with FIRC and KYC

FCGPR–within 30 days of issue of shares. Shares have to be issued within 60 days of inward remittance

Transfer-FCTRS

Within 60 days from the date of transfer. Refund, if any, has to be within 60 days

FLA

ESOP

Indian company to RBI,RO within 30 days.

Form DRR–Domestic custodian to CO within 30days

LLP1(issue–30 days)and LLP2(transfer)– 60days

Portfolio investment–LEC (FPI) & LEC(NRI)–by Ads to RBI CO on a daily basis

Form CN–to AD who will forward to RO. Issue & transfer–30 days. FCGPR to be filed when CNs are converted to shares

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THANK YOUShri Bubul Bordoloi

ManagerForeign Exchange Department, Hyderabad

fedhyderabad@rbi.org.inPh. 040-23267255

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